Corporate Governance: “Russian Model” in Progress
No. 3 2003 July/September
Vladimir Potanin

President of the Interros Holding Company, and Chairman of the Board of Trustees of Russia in Global Affairs.

The low quality of corporate governance has been one of the main obstacles impeding Russia’s economic development. In addition to heavy taxation, excessive interference from the state and ineffective judicial and law-enforcement systems, inadequate corporate governance is a major cause of an unfavorable investment climate. This leads to the export of capital, as well as the intimidation of foreign investors.

The quality of corporate governance is a more important factor than are the company’s current performance indicators, a country’s foreign trade balance or even certain disproportions in its economy. According to McKinsey & Company, when assessing companies operating in transition economies, major investors, as a rule, give preference to the quality of corporate governance over economic and financial ratios. Economic imbalances can be removed if an economy is attractive to investors and if companies have the means for development. But if the quality of corporate governance is low, investment will inevitably be small or zero and even rich natural resources will not radically improve a country’s economy. Global economic experience indicates that prosperity or decline is brought about by a state of mind, rather than natural or technological factors.

Better quality of corporate governance in Russia is a precondition for sustainable economic development, and for doubling the country’s GDP by 2010 – a goal set by President Vladimir Putin. As globalization gains momentum, the future of the country and Russian companies depends on the Russian economy’s ability to compete on the world market. Compliance with corporate governance standards is a means of ensuring a strong competitive drive.

Corporate governance influences the business culture, and this cannot emerge overnight. This is particularly topical for Russia, since it only has several years to catch up with countries that have been traveling down the same road for centuries. Progress in corporate governance can be made through the pooled efforts of companies interested in increasing their effectiveness and in forming a civilized market, as well as of the business community and government agencies.


Large businesses apply two main models of corporate governance – American (Anglo-American) and German. In addition to these, there is a Japanese model. Time will tell whether or not a ‘Russian model’ will ever emerge on the scene; nevertheless, the business world will certainly appreciate the unique experience of Russian companies in rapidly eliminating slovenliness in the workplace.

The American model is defined primarily with the prevalence of ‘outsiders,’ i.e. independent individual shareholders who have no other business relations with a corporation than through their share ownership. As a rule, equity is scattered, and most shareholders are only interested in earnings per share, rather than in being represented on the board of directors or taking part in company management. The Americans have an aggressive approach to business – they quickly and easily dispose of ineffective divisions, do not hesitate to cut jobs and eagerly enter new types of business.

The advantages to the American system lie in the mobility of investment resources and the rapid cross-flow of funds from stagnant sectors into the more effective ones. Its drawback is that corporations are intensely targeted at share yields, sometimes to the detriment of strategic development. On the whole, the American model looks to be more effective during periods of innovative growth, but is highly vulnerable during market crises.

The German model is characterized by a high rate of equity ownership by partner companies and a system for the cross-ownership of shares. The equity structure is remarkable for high levels of concentration: as a rule, several major shareholders control more than 50 percent of the equity. Corporate control is to a large degree exercised by ‘insiders.’ Ideally, corporations are managed on the basis of consensus and social interaction between shareholders and other involved parties, including the employees. Major shareholders are bound to a corporation through common business interests. As a result, ties between shareholders and the company are substantially stronger in Germany than in the United States, and shareholders are interested in their actual participation in company management.

The German model’s economic advantages are obvious: shareholders are primarily focused on attaining long-term strategic goals, corporations are highly viable, and business relations are stable. But the reverse side is relatively low flexibility, an excessive fear of risk, and the inability to make prompt decisions when there is a need to liquidate/sell ineffective business units or downsize the staff.

The Japanese model targets social cohesion at the company level, and business cohesion at an industrial group level. Representation of current and former managers of a corporation is high on the board of directors. The Japanese model is characterized by the active participation of the state, which for a long time was actively involved in strategic planning. The drawbacks with the Japanese model came to light over the last 15 years: Japan has been unable to shake off its years-long stagnation due to the weak initiative at the lower levels of management, as well as rigid economic structure.

In transition economies the ‘insider model’ has been broadly applied with company managers controlling equity; as a rule they are not interested in the presence of outside shareholders.

It has been widely debated in the Russian media as to which corporate governance model is the most appropriate for Russia. It has been argued that if Russia follows the American model it will inevitably witness scandals similar to the one which engulfed the Enron corporation. In my opinion, such objections resemble pointless fears that the ‘steering gear will break down’ when one changes a cart for a locomotive engine.

Calls to follow in the footsteps of the East Asian models are groundless. It seems apparent that Japan and the ‘Asian tigers’ succeeded not so much due to the creation of keiretsu and chebols, as to their willingness to learn and borrow from the experience of other countries in order to compete successfully. Russian proponents of large government-controlled companies do not seem to be eager to learn. Under Russian conditions, the establishment of powerful chebol-like corporations under state patronage may lead to the revival of specialized ‘branch ministries,’ a model having little in common with modern standards of corporate governance. The United States and Western Europe offer examples of successful development of holding companies in the market conditions without the interference and involvement of the state.

It is hardly possible to say at this time that Russia is moving toward this or that classical model of corporate governance. Strong mistrust precludes joint ownership of large equity stakes by business partners, as is the case in Germany. Unlike the United States, Russians do not invest in shares as an instrument of saving. At the same time, marketing Russian corporate securities on the U.S. market may draw certain elements of the American model into the Russian economy. Regardless, American accounting standards are being applied on an increasingly broad scale in Russia.

During the past decade, corporate governance has undergone certain changes around the globe. Modern theories of social development provide for a transition from ‘capitalism of private owners’ to ‘capitalism of hired professional managers.’ This transition certainly has had its effect on corporate governance. In the early 1990s, a series of studies were published in the United States and Europe which noted that the power of managers tended to grow in corporations. The emergence of a ‘new economy’ concept gave another impetus to those discussions: the proponents of this concept argue that the ‘new economy’ develops according to special laws and for that reason many ‘classical’ restrictions on management activities should be lifted.

In order to restore the balance in owner-manager relations, it was proposed to strengthen the role of independent directors. The New York Stock Exchange adopted new rules requiring that independent directors make up a majority on company boards. In the wake of the scandals surrounding Enron and WorldCom, information disclosure requirements were toughened and the responsibilities of top officials of corporations were increased. New rigid legislation is being prepared to provide for a broader presence of independent directors on corporation boards. In other countries, however, corporate governance rules have not been toughened.

Post-industrial trends have changed internal corporate policies in Western companies. Their employees are no longer regarded as hired hands but as creative forces involved in the developmental process. Whether or not this trend has reached Russia is difficult to say. Meanwhile, control over insider activities is a particularly topical issue in Russia. In this respect, the fact that some major Russian companies have begun inviting independent directors to their boards inspires optimism.


Cooperation between Russian and foreign companies, the attraction of foreign investment and the ability of Russian companies to adopt positive international experience – all these factors are closely related to corporate governance. The chief executives of the Russian branch of Sweden’s IKEA Company have said that the quality of corporate governance is the main criterion when they choose a Russian partner, as opposed to the quality of its technical equipment. The reason is that with proper corporate governance, IKEA can easily apply its technologies in Russia, but if there are management problems in a company, the strict observance of quality and deadlines cannot be guaranteed, even if a supplier boasts the most advanced technological equipment.

Many Russian companies are already operating in a global market environment. A country may choose to involve itself in the globalization processes in two different ways.

The first involves integration of the state into all segments of the global market: industry, finance, services, standards, legal norms, corporate culture, etc. The country may be a resource supplier but still enjoy all the fruits of global development, including progressive technological and structural changes, an expanded consumer market and higher living standards. Norway, whose export structure is similar to that of Russia, offers a positive example of this kind.

The other type of integration involves the export of raw materials or farm produce only. The inner structure of the exporting country’s society fails to change and eventually becomes incompatible with global requirements. Moreover, export revenues are often used to mothball noncompetitive economies and ineffective social systems. Negative examples of this variety abound in the Middle East, Latin America and Africa. Suffice it to say that the living standards have been declining in the oil-producing Arab nations, even though they earn vast revenues from their oil exports.

Compliance with the generally accepted corporate governance standards can be regarded not only as a way to improve company ratings and improve the overall investment climate, but as a contribution of Russian businesses to the overall positive scenario of integrating the country into the globalization process. In contrast, the negative scenario (companies controlled by government officials or those close to the authorities) provides for restricted information about their operations, unprofessional management and neglect of shareholders’ interests. These are typical signs of ineffective corporate governance.

Russia has to choose between two routes – a path toward development and prosperity in close interaction with the most developed nations, or a path to degradation into a poverty-ridden third world country ruled by dictatorial methods. It will take decades of hard work by the entire society, including the state and businesses, to reach a level of development comparable with the Western nations. One wrong step, such as an unwarranted use of force, may set the country back many years. At the same time, it would not take much effort to turn Russia into a Zimbabwe – one or two years would be enough to destroy civilized business (or business which seeks to be civilized) and the conditions for its formation.


The privatization process in Russia in the first half of the 1990s had a decisive effect on the style of management at many enterprises. Privatization plans called for the formation of joint stock companies and subsequent transfer of substantial stakes in them to their administration and employees. They would also sell part of the shares through auctions and tenders for privatization vouchers, and later for cash. By the mid-1990s, there were tens of thousands of joint stock companies in Russia, most of them controlled by their managers.

Privatization was intended, on the one hand, to form a wide stratum of proprietors and, on the other, to promote economic development through the emergence of effective owners and skilled managers through competition. These goals were at odds with the interests of most directors, who at that moment already regarded themselves as sovereign masters of their enterprises; they had no intention of changing their management style. As the reformers lacked any serious political footing they had to take account of those interests. These were stated in legislation which made employees (but, in fact, the administration) eligible for privileges during the privatization process.

As a result, the ‘insider’ model prevailed: company managers acquired controlling or major stakes and tried to oust outside shareholders. The result was a distorted market, as enterprise directors, mostly unprepared for work in a market environment, sought to obstruct competition, were not interested in attracting investors and outside shareholders, and favored restrictions on bankruptcy procedures (in fact, they would rather ban it). Interestingly, those who criticized the privatization initiated by Anatoly Chubais opposed provisions that allowed ‘strangers’ to gain control of an enterprise, i.e. they actually favored an even less effective variant of privatization, with managers being even less responsible.

The situation was further aggravated by the fact that many executives failed to gain full control of equity, which prompted them to strip assets from their company and ‘squeeze juice’ out of it. As bankruptcy procedures hardly worked at the time, loss-making enterprises were not restructured.

Around the globe, business has developed from simple to complex forms: from sole proprietorships or family-run firms to partnerships and, finally, to corporations – the highest structural form of entrepreneurial activities. In the 1990s, Russian business traveled for the first time down this road, and in the beginning it was not prepared for real corporate relations. Most joint stock companies were actually sole proprietorships or partnerships which were formally given the status of a corporation during privatization. This discrepancy between form and content resulted in numerous conflicts.

In fact, this was a sort of ‘anti-corporate governance,’ with managers confronting unaffiliated shareholders rather than working in their interests. The chief executives of numerous joint stock companies made every effort to obstruct the emergence of new investors and the transfer of shares into the hands of ‘strangers.’ At that moment, there were no forces in the country that were sincerely interested in cooperation with investors and, therefore, in attracting investment and creating a favorable investment climate. No wonder that such a climate was not created at the time.


In the second half of the 1990s, the business situation started changing for the better. Rapid development was reported by companies that were controlled by effective managers from the former state-owned enterprises, and those led by people who had started financial and trading businesses themselves and had obtained resources for entering other lines of business. With their competitive advantages (particularly in management), such companies rapidly expanded and sought to improve the investment climate.

Company CEOs and owners became less apprehensive about outside shareholders than they were during privatization. Many owners made strategic decisions to separate ownership and management functions. The ‘corporate wars’ had shown that the damage caused by dubious methods in competition exceeded the potential benefits, even for the ‘winners.’

The 1998 crisis dealt a serious blow to progress in corporate governance. First, many businesses failed to meet their full liabilities to investors and other business partners. Second, it took them several years to restructure themselves and win back their reputation.

Nevertheless, since 1998 impressive progress has been made in corporate governance. Many companies have adopted international accounting standards and have grown more transparent, especially since they are planning to trade their shares and bonds on the world stock markets. As a favorable portent of the future, the status of minority shareholders has noticeably improved. A substantial decline of insider holdings in equity is a positive factor: according to estimates, their overall interest went down from 60 percent in 1993-1994 to around 30 percent in 2000.

The positive developments were achieved after most large business groups completed the consolidation of their assets and the owners became interested in improving the quality of management and raising external financing (while at the initial stage, they focused on acquiring, keeping and restructuring assets). Besides, many large and medium-sized companies had reached the effectiveness limits in using their own resources, and had to attract additional investment for their further expansion and development.

The rich history of Russian ‘corporate wars,’ unfortunately, won the Russian business community an unfavorable reputation around the world. Many companies, guided by ethical norms and unable to protect themselves in court, were forced to waive their moral principles and respond to rivals’ aggression symmetrically. Besides, the reputation was damaged by info wars in the media.

But this trend has declined over the last few years. Effective Russian companies are interested in having a new business climate in the country, based on civilized rules of business and new ethics of relations. Effective companies are particularly successful in a fair market competition, while less competent businessmen seek to offset their inability to compete by resorting to unethical methods. Non-government organizations formed by the business community, in particular, the Russian Union of Industrialists and Entrepreneurs, have been energetically involved in resolving those problems. Sound corporate governance is not a short-lived fashion but a basic requirement of the business community. Russia has had more problems than achievements in this field to date; indeed, there are more challenges than accomplishments in corporate governance. But the Russian business community knows how to solve the present problems; we are not traveling down a dead-end road, we are on the highway to success, even if we are not moving as fast as we would like to.


One large problem in many Russian companies is that their managers act either exclusively in their own interests, or in the interests of the largest/affiliated shareholders, rather than in the interests of all shareholders. In particular, owners receive income through channels other than dividends, through all sorts of financial schemes, transfer prices, etc. Naturally, such income is paid only to those shareholders who control the managers or to the CEOs who are the owners. Factors that make this possible include corporate opacity: the largest owner can receive information directly from managers, while the company’s actual financial state and financial schemes are not disclosed to outside shareholders.

Even if the largest owner would like to pay non-dividend income to outside shareholders, he would find it hard to do. Such payments would mean that outside shareholders would be involved in the company’s financial schemes, which are often closely linked with other businesses of the majority owner. This is risky and difficult.

To a great measure, this state of affairs is due to the state’s economic policy. Heavy taxation, wrongful actions by the tax and law-enforcement agencies and the need to sidestep unreasonable barriers in currency control have all encouraged non-transparent financial schemes, thus preventing companies from opening up to the public. From the majority owner’s point of view, the payment of real dividends is a senseless waste of funds in the form of additional tax payments. Disclosure of information is fraught with risks of claims by government agencies. Moreover, making public the actual amount of profits may only serve to whet the appetite of local and regional authorities who are seeking to get all sorts of benefits from companies through administrative levers.

The current reform of the tax system, currency controls and the de-bureaucratization of the economy can only result in improved corporate governance. Unless state regulation of the economy is made more effective, it will be virtually impossible to perfect corporate governance. In this respect, Russia’s main goals include strengthening the legal and judicial systems, reducing the state’s involvement in the economy, substantially lowering administrative barriers and avoiding steps that worsen the investment climate and undermine the country’s international ratings. Finally, it is important to make the corporate decision-making process more open and transparent. To speed up the reform process and improve the quality of state management, it is necessary to remove the barriers between the state machinery and the business community, and encourage successful business people to join government agencies.

Many Russian companies still remain outside a competitive market environment. They lack incentives for improving their professional level of management as well as their reputations. These are mostly companies having formal and informal ties with the state, for example, those enjoying preferential treatment by the regional authorities. It is very often the case that companies in the consumer market cannot function unless they are given the green light by local authorities, who own the land and control power supplies and utilities. Many companies have a monopoly or semi-monopoly status in the local markets due to their corrupt ties with the authorities. As a result, improper corporate governance is still ‘competitive’ as it is compensated for by monopoly profits earned through the administrative resource.

To reverse this trend, the state must remove administrative barriers standing in the way of the development of the real estate market (including land), and the emergence of a competitive environment in the utilities sector. Local authorities should also be stripped of other levers that are capable of placing unwarranted pressure on businesses.

The classical mechanisms of corporate control have been working poorly in Russia. For example, in most companies the board of directors represents the interests of the executive bodies, not shareholders. Besides, the CEOs of some privatized enterprises have a strong dislike for control by the shareholders. Such companies usually lose market competition, therefore there are increasingly fewer managers who hold such views.

Another factor that played a negative role in the development of corporate relations was the unceremonious methods used by majority owners to increase their stakes and thus consolidate equity control. This led to frequent breaches of minority shareholders’ rights and earned Russian businesses a bad reputation. But cases like these are rare in Russia now, as few Russian businessmen wish to have their reputation stained. Furthermore, respective amendments have been made to the legislation which regulates such activities.

Paradoxically, protection of rights is a highly important issue for both minority and majority shareholders. Many takeovers of enterprises in Russia resembled criminal assaults, in which corrupt courts, bailiffs and police units were involved. We can only be thankful that the army has never been used!

Two schemes were used in most cases: bankruptcy procedures and a court-ordered seizure of shares, which are followed by a forcible seizure of property. Legislative improvements have complicated such moves. In particular, under the new bankruptcy laws, a solvent enterprise can repay its debts within the framework of legal proceedings. The new Arbitration Procedural Code limits opportunities for the seizure of shares; in fact, it has banned courts of general jurisdiction from passing verdicts on disputes between shareholders.

The imperfections of the law-enforcement and judicial systems have impeded the development of ethical relations in business. A decline in corruption within these systems could reduce possibilities for unfair business. The business community has attempted to offset the weaknesses of the judicial system, even if partially, by establishing a system of non-government arbitration.

The reputation factor has become a strong incentive for Russian businesses to grow more civilized. The business community no longer regards ‘cutthroat actions’ as a necessary evil and resolutely denounces them.


The initial steps to improve corporate governance can be described as a “clean-up stage.” Following privatization, many big companies, especially in the oil sector, were conglomerates of dozens of enterprises in which the parent company held stakes of different sizes. The subsidiaries, in turn, owned smaller companies, pursued their own policies, which were often different from those of the parent company, and had their own services and marketing subdivisions.

To further complicate the picture, some companies were controlled by a coalition of managers who could not agree on a uniform management policy. In some cases, the chief executive of an enterprise, seeking to win the loyalty of his top managers, delegated to each of them the right to market part of the products or offered them some other ‘stomping ground’ rights. In turn, each manager ‘sponsored’ his own inner circle. As a result, dozens of dubious firms snowballed around the company, and control over their financial and commodity flows proved to be insufficient.

The first stage in improving corporate governance enabled company CEOs to exercise real management and control and pursue a uniform policy based on information about the structure of revenues and costs.

The next step was transition to a ‘single share.’ Without this, it would have been virtually impossible to borrow on the stock market. Besides, making the legal status of the subsidiaries consistent with their actual status also improved the overall management of businesses. In some companies, for example Siloviye Mashiny (Power Machines), this process is still continuing. Paradoxically, some cases of civilized transition to the single share were sharply criticized. For example, minority shareholders of YUKOS really benefited from the company’s restructuring, but when some of the shareholders decided to sell their shares at above market prices this sparked a scandal.

After the restructuring was completed and the ‘corporate wars’ ended, many owners could withdraw from daily management and delegate their authority to professional managers. The leaders of several major companies decided to delimit the functions of managers and owners as a step toward a better structure of management. Invited managers, as a rule, also have other ties with owners than merely employment relations, i.e. they are not ‘hired managers’ proper yet. But the situation when owners personally issued instructions to their personnel will soon become history.

These internal changes helped companies to shift to modern corporate governance standards. The main obstacle was their mistrust of the state: greater transparence would require companies to pay more taxes; it would make them vulnerable before government agencies and rivals through various manipulative administrative levers. But the tax reform and stronger political stability allow large companies to shift to modern standards of corporate governance.

Further advances were linked with the introduction of Western business standards. In the framework of this process, the Federal Securities Commission (FSC) initiated the draft of the Code of Corporate Conduct which sets down tough requirements, even though they are non-binding recommendations.

Many companies have drawn up their own corporate codes, among them Gazprom, Unified Energy Systems, Sberbank, YUKOS, the Magnitogorsk Metallurgical Works and hundreds of other companies. In some companies, code implementation is but a token. But Russian top managers want such documents to really work, while realizing at the same time that this transition cannot be accomplished overnight.

Independent directors as a category have appeared in Russia. For example, LUKoil bylaws require that there should be at least three independent directors on the board. There are three independent directors on Norilsk Nickel’s board. Other companies have announced similar decisions. The institution of independent directors is already working and in some cases has even led to conflicts when independent directors opposed dubious or non-transparent deals made by the leaders of their companies.

A certain regulatory base has been laid in Russia for the activities of the independent directors. In particular, the Russian Association of Independent Directors has drawn up an Independent Director Code. The code’s provisions, like those of the FSC’s Code of Corporate Conduct, have imposed tough requirements (similar to those adopted in the United States) on the independent directors. Along with formal requirements, an independent director must obviously be a professional – only in this case will he be able to properly supervise the company’s activities and take part in the drawing up of its strategy.

Some companies have started introducing option systems for their top and mid-level managers, similar to those existing in the United States. A manager motivation system has already been introduced at YUKOS. Wimm-Bill-Dann has been developing a similar system, too.

Many major companies have included the principle of social responsibility in their corporate strategies. For instance, LUKOIL has adopted its corporate Social Code. Interros is a party to a Global Compact for responsible business practice signed under the UN aegis with UN Secretary General Kofi Annan’s patronage. The full realization of the principle of social responsibility (which also includes environmental issues and combating discrimination) is impossible without the business community’s non-government organizations taking part.


Russian businesses operate in a situation where there is too much bureaucratic control, while effective state regulation is lacking. On the other hand, the state is ready to shed some of its functions. In this sense, Russia is in step with the global trend toward greater deregulation. Therefore, mechanisms for the self-regulation and self-control by the business community should be created, while the nature of interaction between the state and the business community needs to be altered.

The business community is ready to make a major contribution to improving the investment climate in Russia and seeks to make the market more civilized; these will be standards which all Russian business people will strive to meet. Those functions must be performed by the institutions of civil society.

The Russian Union of Industrialists and Entrepreneurs, the Chamber of Commerce and Industry and the FSC have initiated the National Council for Corporate Governance (NCCG). Its members include both top businessmen and government officials, among them representatives of the Ministry of Economic Development, the Ministry of Property Relations, and other agencies. The idea to establish NCCG was discussed by the Russian government’s Council for Entrepreneurship and supported by Prime Minister Mikhail Kasyanov.

NCCG is to become a non-government organization that will facilitate the business community’s common approaches to corporate governance standards and assist with their introduction. The Council will enable business people to agree on certain rules concerning their activities and define strategic priorities in the interests of the whole society.

Corporate governance cannot develop unless the state improves its effectiveness, while the quality of state regulation in some areas depends on relations inside the business community. NCCG is to become an important instrument for dialog between the government authorities and business as both groups almost simultaneously came to understand that corporate governance issues are coming to the foreground.

The process of perfecting the entrepreneurial culture is likely to be an everlasting process, and it will be very difficult to say at any given moment that all of the ideals have been attained and further improvements are impossible. The Council’s objective is to create a permanent flexible mechanism for perfecting the business culture. But NCCG will not be a bureaucratic structure with strictly defined functions, a large staff, etc.

Education will be among the Council’s primary missions. Many Russian companies are strongly interested in sharing experience and disseminating advanced methods. But a substantial share of the business community still cannot see any weighty advantages in adhering to corporate governance standards. They find it unnecessary to act strictly in line with corporate ethics. Surveys indicate that around 17 percent of Russian companies have introduced or are planning to introduce corporate codes, while approximately 50 percent of company leaders (mostly mid-sized and smaller firms) have never heard that such codes exist. Therefore, the Council must encourage people to do what they may later find useful and profitable. 

The Commission for Corporate Ethics under the Russian Union of Industrialists and Entrepreneurs is yet another institution whose goal is promoting business culture. Out-of-court settlement of conflicts is particularly relevant in Russia. First, court verdicts are not always objective. Second, the popular saying that the severity of Russian laws is offset by their non-observance still holds true. Third, business ethics cannot be fully reflected in formal legislation.

The Commission acts as an arbiter intended to settle conflicts between companies, but its decisions are not binding. Nevertheless, the Commission is turning into an effective instrument for raising the level of corporate ethics. Back in the mid-1990s, it was hard to imagine that recommendations issued by a non-government organization could have the power to influence business people. Similarly, no company or person today would like to be the focus of the Commission, let alone receive a public censure from it. This explains why the Commission has not had to make a single decision – after the conflicting parties appealed to the Commission they promptly reached a ‘pre-trial’ settlement of their conflicts.

The Commission for Corporate Ethics has won international respect. In particular, the American Chamber of Commerce in Russia and the Russian Union of Industrialists and Entrepreneurs has signed an agreement for cooperation in corporate ethics. In particular, they agreed that if foreign business people face conflicts in Russia, they should appeal to the Commission.

Another new positive trend is the publication of corporate governance ratings. In the future, after an authoritative and generally recognized ranking source emerges, companies will vie for the lead in these rankings; this will be an important mechanism for encouraging them to improve their corporate governance. Current ratings lists strongly differ from each other and many companies are not even included in them. There are several explanations: first, it is very hard to find objective criteria to assess the quality of corporate governance; second, it is very difficult to collect homogeneous non-financial information from dozens and even hundreds of companies on their internal policies. Vympelcom is the only company, perhaps, that ranks among the leaders in all of the rating lists. As the number of ‘unchallenged leaders’ grows, more companies will be willing to join them.


The level of Russia’s economic development, its image abroad and its ability to attract investment depends on the ability of Russian companies to work effectively. The quality of the investment climate depends on a balance of risks and opportunities, and in the 1990s that balance proved to be unfavorable. Russia has now passed the ‘zero level’ and, I believe, will further improve its investment environment. This will be possible through the Russian business community’s efforts to improve corporate governance.